A laneway house is a small detached residential infill house that typically fronts on the lane of a larger principal house.
It's important for property owners to understand their options before building a laneway house or buying a property with a laneway house. Here is some information about the tax implications of laneway houses and scenarios outlined by the Canada Revenue Agency (CRA).
1. You own a principal residence and you hire a builder to build a new laneway house. You then rent or lease the laneway home to a non-relative.
The CRA considers you to be the builder, and to have:
- sold, repurchased, or 'self-supplied' the laneway house at its fair market value;
- sell-assessed and collected the GST on the sale; and
- paid the GST on the repurchase of the laneway house
You must account for the GST on the GST/HST return (self-accessing), even if you are not a GST/HST registrant. You may:
- be eligilble to claim a GST rebate on the construction of the laneway house, which is considered an improvement to the property, and on the land that forms part of the laneway house. Read Guide RC4033, General Application for GST/HST Rebates.
- claim the rebate on Form GST189, General Application for rebate of GST/HSTusing reason Code 7. For information, read GST/HST Memorandum 19.3.6, Rebate on Non-Registrant's Sale of Real Property.
- be eligible for a GST/HST New Residential Rental Property Rebateas a builder/landord to recover some of the GST.
2. You own a principal residence and you hire a builder to build a new laneway house for a relative, former spouse, or common-law partner to live in as their principal residence.
The CRA does not consider that you have sold and repurchased the laneway house and collected the GST if:
- the laneway house is used primarily (more than 50%) as a place of residence;
- the laneway house is not used primarily for any other purpose after construction of the house is substantially completed; and
- the individual (builder) did not claim any input tax credits (ITCs) when building the laneway house.
You can't claim a non-registrant's rebate for the GST paid on construction costs. You may:
- be eligible for a GST/HST New Housing Rebate for your principal residence; and
- claim the rebate on Form GST189, General Application for rebate of GST/HST, using reason Code 7.
3. You buy a property that includes a new principal residence and laneway house and you rent or lease the laneway home to another individual as a place of residence.
The CRA does not consider you to be the builder of the laneway house or to have sold and repurchased the laneway house, or to have collected tax when you rent to a non-relative.
- You may be eligible for a GST/HST New Housing Rebate on the construction of the laneway house if your relative uses it as a principal residence.
- If you rent or lease the laneway house to a non-relative, you may be eligible for a GST/HST New Housing Rebate for your principal house if it is your primary place of residence.
- You claim the rebatae on Form GST189, General Application for rebate of GST/HST, using reason Code 7. Read GST/HST Memorandum 19.3.6, Rebate on Non-Registrant's Sale of Real Property.
- You may be eligible for a GST/HST New Residential Rental Property Rebate.
DID YOU KNOW?
A laneway home increases the value of a home. Building a laneway home:
LANEWAY HOUSES CAN AFFECT A PERSON'S PRINCIPAL RESIDENCE EXEMPTION
How does a laneway house affect the capital gaines principal residence exemption on a property owner's income tax? The rules are complicated. Click here
As always, for tax implications of a laneway house seek a qualified legal opinion!
(Source of photo & text: Real Estate Board of Greater Vancouver)
For more info on the construction of North Shore backyard homes in the: